Moody's is concerned over S.D. pension case

Moody’s Investors Service is closely watching the fate of San Diego’s voter-approved pension overhaul and the credit-rating firm doesn’t like where it’s headed.

In its weekly credit outlook released Friday, Moody’s explained that a recent court ruling that prevents the city from implementing pension changes until July 27 should be considered a “credit negative” for San Diego that will only be exacerbated if the delay continues beyond that point.

In an email, Moody’s spokesman David Jacobson explained the significance of a “credit negative” determination.

“Moody’s declaration of a ‘credit positive’ or ‘credit negative’ does not mean a ratings change,” he said. “Rather we are stating how these actions could positively or negatively impact an issuer’s overall credit profile.”

City voters overwhelmingly approved Proposition B on the June 5 ballot. It calls for replacing pensions with 401(k)-style plans for most new city hires and proposes a five-year freeze on the pensionable pay for current workers. If implemented fully, an independent analysis found that the city would save about $950 million over the next three decades.

Labor unions are challenging the initiative before the Public Employment Relations Board, a state agency that investigates labor disputes. They accuse city leaders, including Mayor Jerry Sanders, of circumventing state labor law by crafting a citizens’ initiative and then using their influence to gather signatures to put it on the ballot.

The city has failed in court to stop the PERB proceedings, which are set to begin Tuesday in Glendale. Earlier this week, Superior Court Judge Luis Vargas issued a temporary restraining order that prevents the city from implementing Proposition B until July 27, at which point he’ll consider lifting or extending that order.

Moody’s said the outcome of the PERB investigation could jeopardize the $950 million in savings for the city. “The loss of this potential savings would be a long-term credit negative as San Diego contends with pension costs that the city forecasts to increase by $100 million over the next 10 years.”